I often get asked what the most powerful technique is when it comes to pricing.

And I reply – “The contrast principle.”

I believe that it’s described most effectively in the introduction to a book called Influence, Science and Practice by Dr Robert Cialdini. The book – which I consider to be the best book on selling that I’ve ever read – talks about the primary laws of influence. Dr Cialdini calls the concept ‘perceptual contrast’ and describes it like this:

“When we see two things in sequence that are different from one another, we'll tend to see the second one as more different from the first than it actually is.”

It’s a theory that carries into pricing. Human beings are clueless about price.

Honestly. We don’t know the price of anything because we don’t know the absolutes.

And it’s proven. In fact, it’s proven by psychophysics, a branch of science that has been around for more than a hundred years.

So what does it mean?

Essentially psychophysics means that we are more sensitive to differences than we are to absolutes.

Take sensory judgments such as weight, smell, taste and sight for example. If I showed you two shades of red you would be able to see the difference – i.e. tell me which shade was darker – but it’s unlikely you would have no idea on the absolute shade of red.

The same with your sense of touch. If I asked you to put your hands in two buckets of water – one hot, one cold – you would struggle to tell me the exact temperature of the water. But you would be able to tell me which one was hotter and which was cooler.

Essentially it goes back to the basics of economics. I have always been fascinated by economics – so much so that I took a degree in it. One of the most important things I learnt was the theory of the equilibrium price.

Or in other words the fact that price should be set where the supply and demand curve intersects.

When you look at a visual representation of that it shows an area above the equilibrium price and below the demand curve that is the consumer surplus.

That is also the amount of profit available if we can tap into the fact that different customers will pay different prices.

When I started to study economics, even at school one of the very first things we learned was the law of supply and demand. That the point at which the supply curve and the demand curve intersect is the equilibrium – or ideal – price. The trouble is that while that works in theory, in practice it's difficult to measure.

If we could, if we knew, for example, exactly how many tax returns people would buy at £200 or £300, we could easily plot a demand curve. And then, if we worked out the profit for each price point, we’d end up with a bell-shaped chart. One that basically shows that a zero price – giving your stuff away for free, while still having to cover all of your costs – means you’d be making a loss.

One of the big myths I hear over and over again – and one of the main things holding us back with our pricing – is that our clients are price sensitive. But, as the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I can tell you that they’re absolutely not.

Let me explain.

Most accountants and bookkeepers I speak to think their clients are price sensitive. But research by behavioural economists suggests that the number of price-sensitive people in society is about one in five, or 20%. And a typical example might be someone who’s retired, who collects the free newspapers and goes through them every weekend meticulously cutting out the 3p-off food vouchers.

So I admit all they care about is price. They’ve got time on their hands. But what I also know is that they’re not your clients. And, if they are, then you may want to revisit your ideal client process!

As the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I want to share with you why there's no such thing as a market price.

Often, if I tell an accountant they’re charging too little for something, that they should increase the price of doing a tax return, for example, they’ll say, "But Mark, you don't understand my client base. I’m charging the market price – I can’t charge any more."

But I’m going to tell you exactly what I tell them: that they’re wrong. That’s there's no such thing as a market price. And I can prove it.

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